ESP 1 Final Test Fall 2024 PDF

ESP 1 Final Test Fall 2024 1. What happens in which market type? a. Initial Public Offerings and Share Issues happen in the Primary Market; general trades happen in the Secondary Market. b. General trades and pricing happen in the Primary Market; Initial Public Offering...

ESP 1 Final Test Fall 2024 1. What happens in which market type? a. Initial Public Offerings and Share Issues happen in the Primary Market; general trades happen in the Secondary Market. b. General trades and pricing happen in the Primary Market; Initial Public Offerings and Share Issues happen in the Secondary Market. c. The Primary Market is where Stock/Shares are traded; the Secondary Market is where Bonds are traded. d. The Primary Market is where Bonds are traded; the Secondary Market is where Stocks/Shares are traded. 2. Why are Boards of Directors often split in Europe? e. The idea is that the Supervisory Board oversees and approves the activities of the Executive Board, in order to better protect shareholder value with oversight. f. The idea is that the Executive Board controls all aspects of the company; the Supervisory Board is there to review and comment on executive actions. g. The idea is that the Supervisory Board controls the Executive Board, meaning the Chairperson of the Supervisory Board is also the CEO. h. The idea is that the Executive Board oversees and approves the activities of the Supervisory Board, in order to better protect share prices in the market. 3. What is the order of those who are paid if bankruptcy happens? i. Bond Holders, Employees, Creditors, Preferred Shareholders, Common Shareholders. j. Employees, Creditors, Common Shareholders, Bond Holders, Preferred Shareholders. k. Preferred Shareholders, Creditors, Regulators, Government Officials, Common Shareholders. l. Creditors, Debt Holders, Regulators, Preferred Shareholders, External Stakeholders. 4. How do strategic alliances benefit the members? m. It creates a framework for helping each other or "filling gaps" between the various companies within an agreed system. n. It creates a system for exchanging money between each in the form of loans to help finance their businesses. o. It creates a framework for founding new companies to try different business ideas between them. p. It creates a system for exchanging investment capital so that each company is tied financially to the others. 5. Why was Milton Friedman against CSR as a business activity? q. He believed that CSR was a waste of money; companies exist to maximize shareholder value and all other social matters are for the government to worry about. r. He believed that CSR was something only for smaller companies; larger ones were more important, and shouldn't waste their time with it. s. He believed that the business of business is business; a company should only do things that the CEO and other executives want, and shouldn't worry about CSR matters. t. He believed that CSR was a just public relations and while it might be part of strategy for the company, it should never get much focus or attention. 6. What sorts of things are covered under copyright as opposed to a trademark? u. Copyright covers artistic performances, music, etc. Trademark covers images or logos of a particular brand or company. v. Copyright covers the right of people to copy whatever they want. Trademarks cover whatever is used by a company in international trade. w. Copyright covers ideas and inventions a company creates. Trademarks cover whatever extra value a company believes it has. x. Copyright covers speeches by the company, public relations, etc. Trademarks cover vision or mission statement by the company. 7. At which management levels do these objectives get decided at? y. Strategic Objectives are decided by the Board or at the Executive Level; Tactical Objectives by Middle Managers, and Operational Objectives by branch managers or even team leaders. z. Strategic Objectives are decided by the Board or at the Executive Level; Tactical Objectives are also set by the CEO, and Operational Objectives by executives. a. Strategic Objectives are decided by workers by vote; Tactical Objectives by Middle Managers, and Operational Objectives by team leaders and department heads. b. Strategic Objectives are decided by the Middle Managers who will carry out the strategy; Tactical Objectives are by Production Managers, and Operational Objectives by the CEO and Chief Operations Officer. 8. What is the difference between Above the Line and Below the Line promotions? c. ATL advertising focuses on mass media such as TV, radio, billboards whereas BTL advertising is directed to reach a small targeted audience. d. Above the Line are indirect ways of trying to sell products; Below the Line are clear, obvious advertisements. e. Above the Line are advertisements that do their best to be flashy; Below the Line advertisements are subtle, quiet advertisements. f. Above the Line are often simple and loud advertisements; Below the Line are usually artistic or art house style advertisements. 9. What is the job of the audit committee? g. They are supposed to check the financial books of the company to make sure nothing problematic or illegal is happening in the company. h. They are supposed to set the pay and benefits for executives and managers in the company. i. They are supposed to decide who the next Chief Executive Officer is supposed to be in the company, and possibly the other executive officers as well. j. They are supposed to decide which activities the company will pursue in the next fiscal year, in order to set proper objectives. 10. Why does a company care what happens in the secondary stock market? k. Prices for further share issues are set in the secondary market; so, even if companies don't make money from it, the secondary determines company value. l. A company can earn money on both the Primary and Secondary market, and therefore, must be careful how the secondary works to maximize returns. m. The Secondary Market is where most trading happens, and if a company wants to make money, they have to do most of their share issues in the secondary market. n. We sell Preferred Shares in the secondary market, and ordinary shares in the first, so if we want to raise capital, we have to watch both markets. 11. Why can fixed assets be used as collateral? o. Fixed assets are considered long-term and used by the company, so they can later be taken if needed by the bank since they will exist long-term. p. Fixed assets are more "liquid" than current assets, and can be turned into cash more easily. q. Fixed assets are part of the company, whereas current assets are not really counted in the company. r. Fixed assets are harder to get rid of, so the company cannot sell everything and run away from debts. 12. What does the bank hope for if they offer a fixed interest rate or a variable interest rate on a loan? s. They hope the national bank rate falls on a fixed rate loan, and they hope it rises on a variable rate loan. t. They hope the national bank rate falls on a variable rate loan, and they hope it rises on a fixed rate loan. u. They hope the national bank rate stays the same for either type of loan. v. They hope that the borrower will not notice the extra fees added to a fixed rate loan, and don't notice the extra fees added to the variable rate one too. 13. Why would a company do horizontal growth in an acquisition? w. The company wants to expand its market share or get access to a new market for its products. x. The company wants to control supply or quality of supply. y. The company wants to sell more directly to the customer, skipping other retailers or wholesalers. z. The company want to lower their costs by entering new markets. 14. How is a Joint Venture different than a Strategic Alliance? a. A joint venture creates a whole new company to do a business; a strategic alliance creates a framework for cooperation between businesses. b. A joint venture means two companies merge to become a new company; a strategic alliance means one company licenses the others products. c. A joint venture means one company buys out the other company; a strategic alliance means one company merges with another, but only in certain countries. d. A joint venture creates two or more new companies in order to explore markets; a strategic alliance creates a structure for companies to jointly own another company. 15. Why might a company start a conglomerate? e. This would allow the company to diversify risk by spreading their activities across multiple sectors. f. This would allow the company to diversify risk by joining with other companies to do business in a new market. g. This would allow the company to guarantee supply or quality of supplies for a particular product. h. This would allow the company to guarantee higher market share in a particular market or location. 16. How does Diseconomy of Scale happen? i. This happens when a company does not manage increased production or services well and costs rise because of the chaos. j. This happens when a company becomes so successful that rival companies all attack it in the market. k. This happens when a company becomes so small that it isn't able to handle large demand anymore. l. This happens when a company becomes so unsuccessful that it's competition is able to finally destroy it. 17. In terms of purchasing, how does economy of scale happen? m. A company is able to negotiate down its material costs; so that the individual cost of one item is lower; this is true, even though the company ultimately spends more for materials. n. A company is able to renegotiate its fixed costs; variable costs are spread over the amount of production, bringing down the per unit cost. o. A company is able to sell its products in a wider range of markets, spreading risk over them; he company is about to negotiate its indirect costs, bringing down the per unit cost. p. A company is able to make deals with larger companies to access their wider distribution chains; the company is able to negotiate down its loans and other debt, bringing down the per unit cost. 18. Why is it important to manage stakeholders, both internal and external? q. Stakeholders can, even if not having a lot of direct power, have influence over how we do business, and can hurt the business if not happy with us. r. Stakeholders can cause industrial action and do strikes in order to stop our business, and so we must try to keep them happy. s. Stakeholders can sue the company if we do something they don't like; therefore, we must manage their expectations to keep them on our side. t. Stakeholders can trigger a vote of no confidence in our management; therefore, we must manage their expectations to keep them from doing this. 19. Imagine we run a restaurant. What is an example of a change in demographics that causes us to change our business model in response? u. If a large group of French speakers move into an area, and we start offering menus in French to appeal to them. v. If another restaurant nearby begins offering a welcoming drink to visitors, and we start doing the same in order to compete. w. If our competitors allow customers to order online, and we then also join the same app to also allow our customers to order online. x. If the government changes the rules and mandates that restaurants must now all serve tap water instead of bottled water, and we change our menus to fit the new regulations. 20. What is organic growth? y. This is when the company is able to grow the business on its own using retained profits, loans, or investor money. z. This is when the company is able to grow the business based on its ability to gather partners to do business with it in a certain sector. a. This is when the company decides to enter the health food or farming market, and switches their business model to fit the new business. b. This is when the company decides to expand into a new market, and buys another company in that new market to give them a foot into it. 21. What's the advantage for a person to buy into a franchise? c. The franchisee doesn't need to come up with a profitable idea or find suppliers; these are all provided for them by the franchisor. d. The franchisee doesn't need to manage or run the business; the franchisor provides managers and a management plan to follow for the business. e. The franchisee doesn't need to find workers for the business; the franchisor does the hiring and headhunting necessary for the business. f. The franchisee doesn't need to have any capital to start the business; the franchisor provides the capital necessary to get started with the franchise. 22. How does the Current Ratio and Acid Test differ from each other? g. The Current Ratio measures the ratio between Current Assets and Current Liabilities; the Acid Test does the same but subtracts less liquid assets from Current Assets. h. The Current Ratio measures the ratio between Current Assets and Current Liabilities; the Acid Test does the same but adds in Long-Term Liabilities to Current Assets. i. The Current Ratio measures the ratio between shareholder equity and company liabilities; the Acid Test, instead, measures Current Assets minus Current Liabilities. j. The Current Ratio measure the ratio between Gross Profit and Net Profit; the Acid Test does the same but subtracts Expenses from Gross Profit as well. 23. What is the so called "Practical Argument" against a company doing CSR? k. Doing CSR costs too much money, especially for smaller companies, and would lower Profit Margins. l. Doing CSR is something that only medium to large companies can do, since it takes lots of people to manage CSR activities. m. Doing CSR can involve a high level of planning, and many companies don't have proper planning departments. n. Doing CSR is something that needs a motivated CEO and executive management team, and small companies don't have them. 24. Why might you choose to do business in a place you know well? o. You will have more contacts in that place, which means certain aspects of business will be easier. p. You will know the roads in the area better, which will allow you to handle transport better. q. You will know the local officials and bureaucracy better, which means paperwork and other official things will be easier. r. You will have more financing available, as you will know the local banks and investors better, leading to more money raising opportunities. 25. What is the major advantage of using a zero intermediary distribution channel? s. Because you are selling directly to customers through your own website or retail location, you control all aspects of marketing about the product. t. Because you are selling directly to wholesalers, you can have them pay transportation costs instead of you. u. Because you are selling directly to distributors through your network, they can handle marketing and transportation for you. v. Because you are selling directly to retailers, they will take on inventory and storage costs instead of you. 26. What are the major disadvantages of using a Two Intermediary distribution channel? w. The two intermediary channel will naturally cause the price to be marked up twice, and you have no real control over the product's marketing. x. The two intermediary channel will naturally cause your costs to go up as you handle things through two channels. y. The two intermediary channel will naturally cause the price to drop as you try to gain market share. z. The two intermediary channel will naturally cause your costs to go up as you have to pay for marketing costs at each level of distribution. 27. How does a business development loan differ from a grant? a. While both require you to do something the government wants, one must be paid back, and the other has no such requirement. b. While both require you to do something the government wants, they have different interest rates applied, the latter's being lower than the former. c. While both require you to do something the government wants, they are given by different levels of government (i.e. one is from local government, the other from national government). d. While both require you to do something the government wants, one is granted by companies, the other by non-profit organizations. 28. What exactly is Goodwill as an intangible asset? e. Goodwill usually measures whatever a company thinks confers value outside of its usual non-current and current assets; it's up to the company to define it. f. Goodwill usually measures how people feel about a company; companies conduct surveys to regularly assess this. g. Goodwill usually refers to how much "space" a company has to make mistakes, such that the market will forgive them. h. Goodwill usually refers to how well employees and other company partners feel about company, and how much they will do to help it if the company gets in trouble. 29. Why is the gearing/leveraging ratio such an important metric to measure company health by for an investor? i. This number shows the ratio of loans compared to equity, with the idea being that if you have a lot of loans, paying them off will be difficult. j. This number shows the usage of current assets versus your liabilities, with the idea being that if you don't have enough assets to pay off your liabilities, it's bad. k. This number shows how gross profit compares to sales revenue, with the idea being that a high gross profit shows the company's healthiness. l. This number shows how well retained profit is being utilized to create new revenue, with the idea being that well used money always leads to further expansion. 30. What does Return on Capital Employed measure? m. It measures the percentage of profit we receive from our usage of both investor equity and long-term liabilities. n. It measures the percentage of profit we receive from our usage of revenue and short term gains to handle day-to-day expenses. o. It measures the percentage of our capitalization that comes from loans and investor money rather than revenue. p. It measures the percentage of our equity that comes from private investors versus our own personal funds or family money.